While we wait for Japan's largest union federation, Rengo, to release its survey compiling the results of the salary negotiations some time today, Friday, 15 March 2024, UBS say the Bank of Japan will wait for further information.
- there are still good reasons why the 26 April meeting might be favored by the BoJ
- While the wage rise agreed by the large corporations sets the upper limit for corporate Japan as a whole, the amount of pass-through to small and medium-sized firms will only become evident in the second (22 March) and third (4 April) rounds of negotiations
- The second round in particular is typically considered crucial, as it will cover over half of the total number of firms in scope.
UBS go on to say that even if the BoJ move next week (the meeting is on the 18th and 19th) change will be glacial:
- even in the event of an earlier move, the BoJ will still retain enough control over its policy tools to ensure that the emergence from its ultra-accommodative policy stance will be gradual.
- We expect Japan's 5-year and 10-year yields to be capped at 0.5% and 1.0%, respectively.
- We also expect the BoJ to hold its policy rate unchanged at 0% through the first quarter of 2025, even after abandoning the negative interest rate policy.
